WASHINGTON, DC – The National Venture Capital Association (NVCA) issued the following statement after the Senate Finance Committee dropped from its tax reform legislation language that would have wreaked havoc on the equity-based compensation system of startups.  In the modified mark of the Tax Cuts and Jobs Act released by Senate Finance Committee Chairman Orin Hatch (R-UT), the updated bill removed a provision that would have taxed stock options at vesting, which would have forced employees of emerging growth companies to pay taxes on income that has not yet been received and in some cases never realized.  In addition, the committee took the extra step of adding new language to the bill that would provide a deferral to emerging growth company employees that are forced to pay taxes on their exercised stock options without a market to sell them.

“The entrepreneurial ecosystem can breathe a sigh of relief.  After hearing our concerns, the Senate Finance Committee joined their House Ways and Means Committee colleagues in removing language from their respective bills that would have radically altered the equity-based compensation model that has been so fundamental to the success of the entrepreneurial ecosystem for decades,” said Bobby Franklin, President and CEO of NVCA.  “We are also pleased to see the Senate Finance Committee take the additional step of including a major tax reform priority for NVCA that would provide a deferral for startup employees that are forced to exercise their stock options and pay the tax bill without a liquid market to sell those options.  As the process moves forward, we will continue to work with House and Senate lawmakers to highlight for them all the ways we can reform the tax code to better support the entrepreneurial ecosystem and spur new company formation.”